Based on a price pattern, the bear trap trading strategy is a price action trading strategy. Bear trap chart patterns are bullish patterns, that means on seeing it, we should only be looking to buy.
We need
- The ability to spot or identify major support levels.
- The ability to do multiple timeframe trading.
- The ability to identify bullish reversal candlesticks.
Timeframes : 15 Minutes and above
Instrument : All
Indicators : None
Bear Trap Trading Strategy Rules :
Here are the trading rules of the bear trap trading system and they are really simple if we know how to identify the different types of bear trap chart patterns.
- Wait for the bullish candlestick signal, once a bear trap chart pattern forms. Bear Trap chart pattern is the chart pattern formed in the bearish trend hits the support line and bullish candlestick is immediately formed after that.
- After that bullish candlestick signal forms, place a buy stop pending order at least 2 pips above the high of that bullish candlestick.
- Place stop loss at least 2 pips below the low of that bullish candlestick or place it 2 pips below the low of the bear trap candlestick.
- Set Take profit at risk: reward of 1:3 minimum or use the previous swing high as “take profit target”.
Let us explain with a chart below :
Pros :
- Powerful price action trading system especially when price tends to move up explosively and a bear trap pattern forms as anticipated.
- Good risk reward ratio.
- Simple to follow.
Cons :
- Rare to happen as not all support levels will produce bear traps.
- Sometimes bear trap might not be a bear trap at all and price will continue to fall regardless. So expect that trading loses do happen and no trading system is the holy grail as all strategies has their limitation.
